NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES

In the Matter of

NEW DAY FINANCIAL LLC FULTON, MARYLAND

CONSENT ORDER

The New York State Department of Financial Services (the "Department") and New Day

Financial LLC d/b/a New Day USA ("New Day") (collectively, the "Parties") stipulate that:

· WHEREAS New Day, a Delaware corporation headquartered in Fulton, Maryland, is

licensed to offer and negotiate mortgage loans in 44 states, including New York;

WHEREAS numerous investigations of New Day have uncovered that, over the course of

several years, certain New Day employees, including certain now-former senior managers,

violated the Nationwide Multistate Licensing System & Registry ("NMLS") Rules of Conduct

and engaged in organized cheating relating to continuing education courses and exams.

Specifically, certain now-former New Day managers permitted and encouraged members of its

compliance staff- individuals responsible for ensuring New Day's compliance with applicable

laws and regulations- to complete the continuing education requirements on behalf of New

Day's Mortgage Loan Originators ("MLOs"), Chief Executive Officer, and now-former Chief

Operating Officer. Further, New Day MLOs shared information acquired during licensing

exams with New Day senior management, despite the fundamental obligation of test-takers to

preserve the confidentiality of all such information;

WHEREAS the Department's own examination of New Day revealed a number of

violations ofNew York mortgage banking laws. Specifically, and as detailed more thoroughly

herein, New Day failed to provide necessary disclosures for at least 11 0 subprime loans,

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misstated applicable late fees on at least three loans, failed to maintain the requisite minimum

line of credit at all times with a Department-approved credit line provider, and understated its

total New York revenue for 2010 and 2011 in annual reports submitted to the Department;

WHEREAS New Day's violations of law enabled New Day to deceive the Department

and other state regulators and deprive the public of properly educated MLOs; and

WHEREAS the Department must act to prevent and deter similar conduct, protect the

public interest, and ensure that its supervisory concerns regarding New Day are addressed in a

satisfactory manner;

NOW, THEREFORE, to resolve this matter without further proceedings pursuant to the

Superintendent's authority under Sections 39 and 44 of the Banking Law, the Department and

New Day agree to the following:

Factual Background

1. Through 2014, New Day's primary business had been originating refinance home

loans for military service members, veterans and eligible surviving spouses. In 2014, New Day's

revenues exceeded $117 million, while its total assets exceeded $178 million.

2. As with all MLOs licensed in the State ofNew York, New Day's New York-

licensed MLOs must complete continuing education courses and testing, as required under

Article 12-E ofthe New York Banking Law and Part 420 of the Superintendent's Regulations (3

NYCRR Part 420) ("Part 420") and Title V of Public Law 110-289, the Secure and Fair

Enforcement for Mortgage Licensing Act of 2008 (the "SAFE Act").

3. The purpose of the continuing education requirements is to ensure that MLOs ­

who offer and extend mortgage loans to all types of borrowers- understand federal and state

laws and regulations governing the mortgage lending industry; receive instruction on fraud,

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consumer protection, and fair lending issues; are knowledgeable about lending standards in the

nontraditional mortgage market; and are informed of other important lending matters.

4. In completing the education requirements, MLOs must agree to abide by the

Rules of Conduct of the NMLS, which prohibit any person from taking required courses and

related exams on behalf of another person (NMLS Rule of Conduct 1 ), require MLOs to

maintain the confidentiality of testing materials (NMLS Rule of Conduct 7), and oblige MLOs to

refrain from any conduct that is dishonest, fraudulent, or that would adversely impact the

integrity of the test (NMLS Rule of Conduct 11 ).

Fraudulent and Dishonest Conduct ofNew Day Employees

5. On October 7, 2013, a former employee ofNew Day filed a complaint with the

State Regulatory Registry ("SRR") alleging that employees ofNew Day had violated the NMLS

Rules of Conduct by providing or receiving assistance on and misusing study materials for the

SAFE mortgage loan originator testing program. Multiple investigations of New Day ensued,

including investigations conducted by the SRR, by the Maryland Department of Labor on behalf

of the Multistate Mortgage Committee ("MMC"), and by New Day itself, which revealed the

fraudulent and dishonest conduct detailed below.

6. Over the course of several years, until at least 2013, certain New Day employees,

including certain now-former senior managers, deceived state regulators in New York and

elsewhere by systematically violating NMLS Rules of Conduct 1, 7 and 11. In doing so, New

Day deprived the public of properly educated MLOs.

7. More specifically, at least twenty New Day MLOs did not personally take the

required continuing education courses and exams, but rather had New Day compliance staff take

the required courses and exams on their behalf.

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8. At least three now-former New Day compliance staff either improperly attempted

to satisfy continuing education requirements on behalf ofNew Day MLOs or coordinated with

others to attempt to satisfy such education requirements on behalf ofNew Day MLOs.

9. On multiple occasions, New Day MLOs reported to New Day's now-former Vice

President of Training information that they learned while taking SAFE MLO licensing exams.

10. On multiple occasions, New Day MLOs took and shared with now-former senior

management and other MLOs screen-shots of questions included in the continuing education

courses.

Fraud and Dishonesty Perpetrated by New Day Officers and Senior Manager

11. New Day's Chief Executive Officer had continuing education requirements

completed on his behalf by other employees on at least eighteen occasions.

12. New Day's now-former Chief Operating Officer had continuing education

requirements completed on his behalf by other employees on at least eighteen occasions, and, in

at least one instance, directly asked a compliance staff member to take the required courses in his

place.

13. The now-former head oflicensing arranged for compliance staff to take the

required continuing education exams on behalf of New Day MLOs.

14. The now-former Vice President of Training encouraged MLOs to report back to

New Day staff with information that MLOs acquired while taking SAFE MLO licensing exams

in order to update New Day's internal test preparation materials for new MLOs.

15. The now-former Senior Vice President of the Reverse Division was aware that

New Day MLOs took and shared screen-shots of materials included in the continuing education

courses, and had personally received copies of these materials.

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16. At least six other New Day senior managers participated in or had knowledge of

some or all of the conduct described above.

17. Despite New Day's decision to terminate or separate from certain senior

managers for their participation in or knowledge of some or all of the conduct described above,

New Day's parent corporation- Chrysalis Holdings LLC- subsequently rehired two of the

former senior managers- raising doubts regarding New Day's purported concern for remedying

its culture of fraud and dishonesty.

The Depatiment's Mortgage Banking Examination of New Day

18. As part ofthe Department's effort to ensure that the residential mortgage lending

industry is operating fairly, honestly, efficiently, and free from deceptive and anti-competitive

practices, the Department periodically examines mortgage bankers' compliance with Articles 12­

D and 12-E of the New York Banking Law, along with other applicable federal and state laws

and regulations.

19. The Department's examination ofNew Day was conducted as of March 31, 2012

and focused on a sample of mortgage loan files. In the course of its examination, the Department

uncovered a multitude of compliance failures, as detailed below.

20. For at least 110 subprime home loans in New York originated between August 28,

2008 and March 26, 2012, New Day failed to (a) provide the borrowers with information on the

availability of loan counseling, and (b) include a legend on top of each borrower's mortgage

stating that the mortgage is a subprime loan.

21. For at least three home loans in New York originated between January 1, 2009

and March 31, 2012, New Day stated in the Truth-In-Lending disclosures that any late charge

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would be 2% of any delinquent payment, even though the respective mortgage notes stated that

any late charge would be 4% of any delinquent payment.

22. For at least 30 home loans in New York originated between January 1, 2009 and

March 31, 2012, New Day collected loan discount fees to reduce the initial interest rate, but

failed to make the requisite application disclosure to the corresponding borrowers.

23. Between March 30, 2012 and June 28, 2012, New Day failed to maintain the

requisite minimum line of credit with a credit line provider approved by the Department.

24. For New Day's annual Volume of Operation Report submitted to the Department

in 2010 and 2011, New Day underreported its total New York revenue by $272,009 and $3,960,

respectively.

Other Fraudulent and Dishonest Conduct

25. Further illustrating New Day's insufficient concern for consumer protection or

regulatory compliance, on February 10, 2015, the Consumer Financial Protection Bureau (the

"CFPB") found that New Day had engaged in deceptive acts or practices by failing to disclose

payments to a veteran's organization that endorsed New Day. The CFPB also found that New

Day had made payments to third parties in connection with the marketing of home loans that

constituted illegal payments for referrals of mortgage origination business.

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Violations of Law

Practice relating to MLO ducation Requirements

First Violation (Failing to Ensure the Character, Fitness, and Education ofMLOs; 3 NY.C.R.R. § 420.18)

26. New Day permitted numerous MLOs subject to education requirements to engage

in mortgage loan originating, even though New Day failed to ensure such MLOs had the

requisite character, fitness, and education qualifications.

Second Violation (Lacking ProofofCompletion ofEducation Requirements; 3 NY. C.R.R. § 420.20)

27. New Day permitted numerous MLOs subject to education requirements to engage

in mortgage loan originating, even though New Day failed to obtain acceptable proof of

completion of such education requirements.

Third Violation (Failing to Maintain Responsibility, Experience, Character, and Fitness; NYBL § 595(1)(b))

28. New Day and New Day's Chief Executive Officer and now-former Chief

Operating Officer failed to maintain the financial responsibility, experience, character, and

general fitness such as to command the confidence of the community and to warrant belief that

the business will be operated honestly, fairly, and efficiently.

Department' s Mortgage Banking Examination

Fourth Violation (Improper Issuance ofSubprime Home Loans; NYBL §§ 6-M(2)0) and 6-M(5))

29. For at least 110 subprime home loans in New York originated between August 28,

2008 and March 26, 2012, New Day failed to (a) provide the borrowers with information on the

availability of loan counseling, and (b) include a legend on top of each borrower's mortgage

stating that the mortgage is a subprime loan.

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Fifth Violation (Misrepresenting Loan Terms; 3 N. Y.C.R.R. § 38. 7(a)(1))

30. For at least three home loans in New York originated between January 1, 2009

and March 31, 2012, New Day stated in the Truth-In-Lending disclosures that any late charge

would be 2% of any delinquent payment, even though the respective mortgage notes stated that

any late charge would be 4% of any delinquent payment.

Sixth Violation (Failing to Provide Discount Points Notification; 3 N.Y.C.R.R. § 38.3(b)(J)(v))

31. For at least 30 home loans in New York originated between January 1, 2009 and

March 31, 2012, New Day charged discount points but failed to make the requisite pre-

application disclosure to the borrowers.

Seventh Violation (Failing to Maintain Minimum Line ofCredit; 3 N. Y.C.R.R. § 410.1 (b)(2))

32. Between March 30, 2012 and June 28, 2012, New Day failed to maintain the

requisite minimum line of credit with a credit line provider approved by the Department.

Eighth Violation (Submitting False Volume ofOperations Report; NYBL § 597)

33. For New Day's annual Volume of Operations Report submitted to the Department

in 2010 and 2011, New Day underreported its total New York revenue by $272,009 and $3,960,

respectively.

Settlement Provisions

License Surrender:

34. New Day has elected to surrender its mortgage banker's license pursuant to

Banking Law§ 591 to engage in the business of making mortgage loans in New York. New Day

shall immediately cease taking new loan applications from New York customers. No later than

seven days after the execution of this Consent Order, New Day shall provide a written report to

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the Department listing all loans for which New Day has received applications, but which have

yet to close. The report must identify each loan and the projected closing dates. New Day will

close these applications within thirty days of the date of this Consent Order. Any pending loan

application that does not close by said date shall be transferred to a third party lender of the

applicant's choosing, subject to the Department's approval. New Day shall bear all costs and

fees related to the transfer. At the end of the 30-day period following the execution of this

Consent Order, New Day shall surrender to the Department its mortgage banker's license.

Neither New Day nor its principal owners or executive officers shall be permitted to engage in

the mortgage banking business in the State ofNew York following the surrender ofNew Day's

license.

35. New Day, its principal owners and executive officers shall be eligible to reapply

for a mortgage banker's license no sooner than three years from the date of execution of this

Consent Order.

36. New Day shall immediately surrender its status as an exempt mortgage servicer in

New York. New Day shall have 90 days from the date of execution of this Consent Order to

transfer the servicing rights for all New York loans to a third-party servicer of New Day's

choosing, subject to the Department's approval. At the expiration of the 90-day period, New

Day shall report to the Department in writing that it has complied with this provision. If, prior to

the expiration of this 90-day period, New Day anticipates being unable to complete the transfer

of servicing rights within the allotted time, New Day shall contact the Department in writing to

request an extension of the 90-day period, which the Department may grant in its discretion,

which shall not be unreasonably withheld. New Day shall submit any such request no later than

10 business days prior to the expiration of the 90-day period. In the case of Federal National

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Mortgage Association ("FNMA") or Federal Home Loan Mortgage Corporation ("FHLMC")

loans serviced by New Day, New Day shall provide notice to FNMA or FHLMC of New Day's

obligation to transfer servicing rights no later than 14 days from the date of execution of this

Consent Order. New Day shall notify the Department in writing that it has provided the requisite

notice immediately thereafter. Neither New Day nor its principal owners or executive officers

shall be permitted to engage in the mortgage servicing business in the State ofNew York

following the transfer of servicing rights for New York loans to a third-party servicer.

37. New Day shall be eligible to reapply for the status of exempt mortgage servicer

no sooner than three years from the execution of this Consent Order.

Monetary Payment:

38. New Day shall pay a civil monetary penalty pursuant to Banking Law§ 44 to the

Department in the amount of $1,000,000. New Day shall pay the entire amount within ten

business days of executing this Consent Order. New Day agrees that it will not claim, assert, or

apply for a tax deduction or tax credit with regard to any U.S. federal, state, or local tax, directly

or indirectly, for any portion of the civil monetary penalty paid pursuant to this Consent Order.

Breach of Consent Order:

39. In the event that the Department believes New Day to be in breach of the Consent

Order, the Department will provide written notice to New Day. Within ten business days of

receiving such notice, or on a later date if so determined in the Department's sole discretion,

New Day shall appear before the Department to demonstrate that no breach has occurred or, to

the extent pertinent, that the breach is not material or has been cured.

40. The Parties understand and agree that New Day's failure to make the required

showing within the designated time period shall be presumptive evidence ofNew Day's breach.

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Upon a finding that New Day has breached this Consent Order, the Department has all the

remedies available to it under New York Banking and Financial Services Law and may use any

evidence available to the Department in any ensuing hearings, notices, or orders .

Waiver of Rights:

41. The parties understand and agree that no provision ofthis Consent Order is

subject to review in any court or tribunal outside the Department.

Parties Bound by the Consent Order:

42. This Consent Order is binding on the Department and New Day, as well as any

successors and assigns that are under the Department' s supervisory authority.

43. No further action will be taken by the Department against New Day for the

conduct set forth in this Consent Order, provided that New Day complies with the terms of the

Consent Order.

44 . Notwithstanding any other provision in this Consent Order, however, the

Department may undertake additional action against New Day for conduct that New Day did not

disclose to the Department in writing in connection with this matter.

IN WITNESS HEREOF, the Parties have caused this Consent Order to be signed this /&lay of November, 2015 .

By: ----4-~~~~~------- ~----~ ROBERT Chief Executive Officer

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